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By Annabis Moody, Financial Editor
SLReports.net The Second Life banking industry has recently come under fire because a major bank (Ginko) did not have adequate cash reserves, and many investors lost their money. There are some in the SL financial environment who feel that banks should have standard criteria in place to ensure transparency and restore trust. “All Banks should have to list their method for investing to the public, plus their total amount of cash on hand at all times, and assets," said Legolas Delgado, CEO of Karlfeldt & Delgado Capital (KDC). “KDC discloses all assets, cash reserves and current plans of action to the public so they can see what the company has done, what they have, and where they are going,” Delgado said. “There should be a minimum reserve amount for all banks – 15 percent; furthermore, there should also be third party audits from companies like The Rock Insurance,” he added.
Institutions such as the SL Capital Exchange (CapEx) also have measures in place designed to provide transparency and strengthen public trust. “CapEx encourages absolute transparency by the executives who seek to list and trade their securities on the Exchange. The CapEx management has recently implemented a policy wherein any new entity requesting listing consideration must be willing to submit to a complete transparency review by Exchange officers,” said Bogart Beck, CFO of CapEx. According to Beck, the following criteria should be in place to ensure transparency when a banking institution wants to get established: “Foremost, RL verification (at minimum a Drivers License, Social Security number, etc.), and a real life credit profile that demonstrates sufficient assets to assure long-term viability of the institution should be mandatory. Personally, I would even advocate some form of surety bond or other performance instrument that protects the interests of the ‘depositors’ should such entity fail to perform as implied or ‘promised,’” he added. Many agree there should be regulations in place for the SL banking industry, but foresee possible problems implementing them. “Unfortunately, at this point the central money supply is controlled by Linden Labs (LL) entirely. Further, LL's laissez-faire position with regard to anything beyond its core mission (software developer and hosting company) will make it extremely difficult for a group of individuals to assert real policy,” said Beck. “The SL banking community could ostensibly self-regulate – that, too, would require willing participation by all involved. It all comes down to the principal question: At what point does SL stop being a game and start being a business?” he added. It appears to be an ethical dilemma worth strong consideration. “At the instant you accept another person’s money for safekeeping, particularly under the guise of a ‘bank’, you have materially represented a capacity to administer, and thus should be obligated to perform the fiduciary responsibilities that are reasonably and customarily expected of such a banking relationship,” Beck said. Following the collapse of Ginko, there was an outcry to ban banks on SL. Some believe this would damage the overall economy of SL. Delgado surmised that if banks are banned on SL, the stock exchanges will follow. He feels the SL economy would not suffer a tremendous blow, as compared to the gambling ban, but estimates perhaps ten percent slower economic growth. “The real problem would be people will no longer see SL as a place where you can make your own rules and run your own life. As LL imposes more restrictions people begin wondering, why play SL at all if we have to play by the same rules as real life?” he said. Delgado believes banks should remain on SL because it helps the expansion of the SL economy, especially if the people investing the money are doing it outside of SL. “Banks investing outside of SL pull more money into SL from outside sources that otherwise wouldn’t be there,” he said. Others agree that to ban banking would ultimately harm the SL economy. “Unfortunately, in my view, a whole lot of innovative ideas and concepts will have no way of reaching fruition within SL were that to happen,” said Beck. “Fundamentally, as SL is an environment wholly dependent on an economic simulation, the inability for individuals who don't have sufficient financial resources to develop such ideas will simply stop contributing to the simulation – that would be a travesty.” Others in the banking industry agree. “What we are talking about here is not only the health of banks, but of communities, and individual ideas that will come to fruition for the betterment of others,” said Cliff Eclipse, VP of Customer Relations at BNT Financial. Some SL landowners also believe that banning banks in this virtual world would be a mistake. “For all the people who want banks banned, I say just don’t use them. The basic law in economy is the larger the risk the larger the reward. So, yes, SL banks are a larger risk than RL banks, and some will crash and you may lose money, but banning SL banks will ruin the SL economy even more,” said SL resident Zaldar Rhode. “People who want to ban everything from SL will not fix the problem. It is up to the user to decide what risks they are willing to take with their money, just like in the real world. Don’t put the blame on LL for everything,” said Rhode. According to Beck, the whole point of the SL simulation as articulated by Philip Rosedale (founder of Linden Labs) was that anyone could come into SL and create value; the reality is that the current state of affairs in SL requires a certain amount of free cash flow to do anything of meaningful significance. “To be honest I believe LL's incumbent economic model works fairly well. The sinks are well documented, money supply is well documented, and, in spite of the recent correction in SL land prices (just as in RL), the overall economy is relatively stable,” said Beck. So how is a person to know which banks to trust? It is suggested that a good indicator of trustworthiness is found in the institutions that have ample cash reserves and perform regular audits, with additional internal checks and balances, and provide a high level of transparency. “It is not just banking that will see brighter and exciting times ahead, it is all of us, all of SL,” said Eclipse.
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